Although Mercy Hospital in Iowa City has signed a letter of intent to sell most of its assets to the University of Iowa for $20 million, a review of property assessment records show the 150-year-old community hospital’s 19 properties — all of which are intended for the UI — are valued at more than $137.3 million.
The 14 properties in Iowa City — including its $112.9 million main hospital campus on Market Street and a $14.1 million property at 540 E. Jefferson St. — total $135.5 million. Mercy also owns property it uses for clinics in Kalona, Tipton, Williamsburg and West Liberty valued at a combined $1.8 million.
The community hospital — which filed for Chapter 11 bankruptcy protection this month following years of financial woes and an accusation of default from its largest bondholder — also leases medical office space in Coralville, Solon and West Branch, which it plans to transfer to the UI.
A Flourish map
Given Mercy Iowa City’s nonprofit nature as a religious and charitable organization, it can apply for property tax exemptions if it’s using the property for its own purposes. Mercy still has to pay tax on property it’s renting at non-religious entities, Iowa City Assessor Brad Comer said.
On the Iowa City properties for which Mercy didn’t request an exemption last year, the hospital paid $393,108 in taxes according to Comer. Should the sale to the UI go through, all the Mercy property automatically would not be subject to taxes, given the university is a government agency.
But the UI sale is far from a done deal, Mercy and UI officials have said — even though their letter of intent has established the $20 million UI offer as the lowest bid, and Mercy wants to bake in to their arrangement “bid protections” requiring competing bidders to pay the UI a reimbursement fee for the work it has put into the sale so far.
“The University of Iowa and Mercy Iowa City have signed an asset purchase agreement, and the university is considered the ‘stalking horse bidder,’” Mercy President and Chief Executive Officer Tom Clancy wrote in an email to employees last week. “Other potential buyers could make a competing bid to acquire Mercy, and we are currently in a period where those bids could be submitted. The selected organization is generally the one offering the highest and best bid, with some advantages given to health care organizations that will take care of our patients and will continue to serve employees and the community.”
Clancy, in his email, disputed assertions from the hospital’s largest bondholder that Mercy — under UI ownership — will cease to be a community hospital and instead morph into a “behavioral health hospital.”
“Any speculation about what Mercy will become is just that — speculation,” he wrote. “If selected by the courts, the university has said it plans to conduct an in-depth analysis of the health care needs of the Iowa City community before making any modifications to the hospital or its services.”
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Neither Mercy nor UI officials have answered questions about how they came to the $20 million offer price. The university in 2021 was among at least four health care entities that offered to take over Mercy Iowa City in the hospital’s efforts to part ways with its managing partner, MercyOne of Des Moines.
UI Health Care at that time offered more than $605 over 10 years to buy Mercy, “including $85 million in capital investment split between Mercy Iowa City’s unfunded pension liability and workforce development efforts.” The remaining $520 million would have gone toward growing and reestablishing service lines and upgrading facilities, equipment and technology, according to documents obtained by The Gazette.
Mercy Medical Center in Cedar Rapids and UnityPoint Health at the time also made offers to take over Mercy Iowa City — including its tens of millions in debt. Although officials haven’t answered questions about why those offers didn’t materialize, Mercy Iowa City bondholder Preston Hollow Community Capital has asked a judge to appoint an independent examiner to find out.
“What was once a vibrant and profitable community hospital, with substantial value to its stakeholders and the Iowa City community, is now being liquidated through a bankruptcy fire sale process for a mere $20 million,” according to the bondholder’s petition for an investigation. “Measured by its liabilities of well over $100 million, including its $63 million in publicly-issued bonds and its $23 million in defined benefit pension plan liabilities, the $20 million purchase offer reveals the extent of Mercy’s financial collapse and insolvency under the stewardship of the debtors’ current and former directors, officers and managers.”
Public records released Friday indicate Moody’s Investor Service in July downgraded Mercy’s bonds rating to Caa3, just two steps above its worst rating. And then, following Mercy’s bankruptcy filing, Moody’s withdrew its rating altogether.
Mercy has requested a Sept. 19 deadline for alternate bids. An auction, if necessary, would be held Sept. 22. And a sale hearing would happen Sept. 27, per Mercy’s request. The bankruptcy judge has final say on any sale, but the Board of Regents on Aug. 8 gave its approval of the $20 million bid.
The regents, however, also gave the university permission to submit a competing bid “that is greater than the proposed purchase price, but only in such amount that is necessary to secure the assets.”
If the university does win the Mercy sale, officials have indicated it “will make employment offers to substantially all Mercy employees,” Clancy said in his email to employees last week.
“As with any transition in ownership, employees would need to complete some standard human resources processes, such as completing applications, and signing up for benefits,” he wrote.
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The 14 properties in Iowa City — including its $112.9 million main hospital campus on Market Street and a $14.1 million property at 540 E. Jefferson St. — total $135.5 million. Mercy also owns property it uses for clinics in Kalona, Tipton, Williamsburg and West Liberty valued at a combined $1.8 million.
The community hospital — which filed for Chapter 11 bankruptcy protection this month following years of financial woes and an accusation of default from its largest bondholder — also leases medical office space in Coralville, Solon and West Branch, which it plans to transfer to the UI.
A Flourish mapGiven Mercy Iowa City’s nonprofit nature as a religious and charitable organization, it can apply for property tax exemptions if it’s using the property for its own purposes. Mercy still has to pay tax on property it’s renting at non-religious entities, Iowa City Assessor Brad Comer said.
On the Iowa City properties for which Mercy didn’t request an exemption last year, the hospital paid $393,108 in taxes according to Comer. Should the sale to the UI go through, all the Mercy property automatically would not be subject to taxes, given the university is a government agency.
But the UI sale is far from a done deal, Mercy and UI officials have said — even though their letter of intent has established the $20 million UI offer as the lowest bid, and Mercy wants to bake in to their arrangement “bid protections” requiring competing bidders to pay the UI a reimbursement fee for the work it has put into the sale so far.
“The University of Iowa and Mercy Iowa City have signed an asset purchase agreement, and the university is considered the ‘stalking horse bidder,’” Mercy President and Chief Executive Officer Tom Clancy wrote in an email to employees last week. “Other potential buyers could make a competing bid to acquire Mercy, and we are currently in a period where those bids could be submitted. The selected organization is generally the one offering the highest and best bid, with some advantages given to health care organizations that will take care of our patients and will continue to serve employees and the community.”
Clancy, in his email, disputed assertions from the hospital’s largest bondholder that Mercy — under UI ownership — will cease to be a community hospital and instead morph into a “behavioral health hospital.”
“Any speculation about what Mercy will become is just that — speculation,” he wrote. “If selected by the courts, the university has said it plans to conduct an in-depth analysis of the health care needs of the Iowa City community before making any modifications to the hospital or its services.”
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Neither Mercy nor UI officials have answered questions about how they came to the $20 million offer price. The university in 2021 was among at least four health care entities that offered to take over Mercy Iowa City in the hospital’s efforts to part ways with its managing partner, MercyOne of Des Moines.
UI Health Care at that time offered more than $605 over 10 years to buy Mercy, “including $85 million in capital investment split between Mercy Iowa City’s unfunded pension liability and workforce development efforts.” The remaining $520 million would have gone toward growing and reestablishing service lines and upgrading facilities, equipment and technology, according to documents obtained by The Gazette.
Mercy Medical Center in Cedar Rapids and UnityPoint Health at the time also made offers to take over Mercy Iowa City — including its tens of millions in debt. Although officials haven’t answered questions about why those offers didn’t materialize, Mercy Iowa City bondholder Preston Hollow Community Capital has asked a judge to appoint an independent examiner to find out.
“What was once a vibrant and profitable community hospital, with substantial value to its stakeholders and the Iowa City community, is now being liquidated through a bankruptcy fire sale process for a mere $20 million,” according to the bondholder’s petition for an investigation. “Measured by its liabilities of well over $100 million, including its $63 million in publicly-issued bonds and its $23 million in defined benefit pension plan liabilities, the $20 million purchase offer reveals the extent of Mercy’s financial collapse and insolvency under the stewardship of the debtors’ current and former directors, officers and managers.”
Public records released Friday indicate Moody’s Investor Service in July downgraded Mercy’s bonds rating to Caa3, just two steps above its worst rating. And then, following Mercy’s bankruptcy filing, Moody’s withdrew its rating altogether.
Mercy has requested a Sept. 19 deadline for alternate bids. An auction, if necessary, would be held Sept. 22. And a sale hearing would happen Sept. 27, per Mercy’s request. The bankruptcy judge has final say on any sale, but the Board of Regents on Aug. 8 gave its approval of the $20 million bid.
The regents, however, also gave the university permission to submit a competing bid “that is greater than the proposed purchase price, but only in such amount that is necessary to secure the assets.”
If the university does win the Mercy sale, officials have indicated it “will make employment offers to substantially all Mercy employees,” Clancy said in his email to employees last week.
“As with any transition in ownership, employees would need to complete some standard human resources processes, such as completing applications, and signing up for benefits,” he wrote.
Mercy properties valued at $137.3M, nearly seven times $20M agreement
Although Mercy Iowa City has signed a letter of intent to sell most of its assets to the University of Iowa for $20 million, a review of assessment records show the 150-year-old community hospital’s 19 properties – all of which are intended for UI – are valued at more than $137.3 million.
www.thegazette.com
